VAT in Second Life

Yep, and again it is after reading Zed’s latest splurge about the application of VAT to EU citizens, and the wonderful and heroic actions from Linden Lab to try and ’save’ us from these charges, that I decided to write my own response here.

Reading the blog entry I noticed two issues:
1. Absolutely no apology for the way this tax was applied and its unfortunate affect on a large portion of SL’s population, and
2. No explanation of a defence of the SL product to the tax authorities by Linden Research, Inc.

Let’s leave the first point for later and talk about the second one.

Tax authorities are always sensitive to the correct application of taxes, and in terms of VAT the participation of Customs and Excise in the correct definition of such an application also makes for an open forum in all cases between them and the suppliers of such products or services.

Zed notes in his response that ‘The tax authorities could not have imagined a service like Second Life which enables Residents to develop and sell land, content or other forms of intellectual property within an ecosystem even though they are not official VAT-registered businesses.‘ - meaning to me as for any other supplier or importer of new products or services, that it was up to Linden Lab to negotiate the issue of VAT on SL and to explain to the authorities what differs in SL that justifies a reduced VAT application. If this was done correctly, in my view we would have seen:
1. that we would possibly have paid VAT on premium accounts, and
2. that we would have been excempt from paying for land purchases as these are not a service to the customer of Linden Research, but a service or product to the avatar, and value added tax cannot be justified for such a virtual service or product.

Nowhere in all Linden Lab’s responses to EU residents have they explained this process of fighting for our cause, offering instead only the EU VAT directive quote and a very flimsy and unproven story about having absorbed the VAT over the years on our behalf. The latter point raises an interesting contradiction in my view between Zed’s post and Robin’s post earlier in the week, as Zed’s implies that LL have been paying VAT on our behalf for some time, whilst Robin’s implies to me that they have only just been discussing with ‘leading VAT experts’ about their liabilities for VAT in the EU, as in a sudden realization.

If Zed's version is correct then last week's action is a raise of SL prices to EU residents, since prices have always been inclusive until LL decided they cannot afford to absorb it any longer. Furthermore if Zed is correct then LL have had ample time to plan, notify and manage the application of VAT to us EU residents. Why not come out and say it!

To those who have believed Zed's post of a very badly managed issue, don’t for one moment believe that the Tax Authorities are the only ‘bad guys’ here. Prior to a VAT charge being applied to a new service or product, the supplier or vendor or importer of such a product has AMPLE time to defend its objections and to negotiate with them on the various taxable or non-taxable parts of such a service. Furthermore ALL the LL posts about this issue make it clear that they have had AMPLE time to forewarn us of pending VAT charges, a warning that could have been at least a week prior to the application instead of the same day.

Zed, you and your team have let us down, and if you disagree prove it to us by being transparent about your fight on our behalf and the proof that Linden Lab has indeed been paying VAT on our behalf!

See my other blog at http://dumisani.wordpress.com/